Not Behind Closed Doors

May 12, 2012

The 2G auction recommendation made by the TRAI has generated loud and angry reactions from the telecom industry. Expectedly we saw sights of the big guns of the Telecom sector rushing to the Minister for secret confabulations. It also has had the effect of erstwhile arch-rivals rubbing shoulders and uniting to take on the Regulator.

New entrants such as Uninor and Datacom are aligning with traditional adversaries such as Airtel, Idea, Vodafone and Aircel onone hand, while GSM operators are finding themselves in a conveniently co-located position at least on issues of reserve price with their till-recent arch rivals, the dual technology operators.

The government, for the first time, and rightly, has kept a studied silence on the issue. The Telecom Commission has sent a set of questions back to the TRAI. In the meantime, the industry continues to make loud noises about how a high reserve price, coupled with artificial scarcity of spectrum, would harm consumer interest and end up raising tariffs. Essentially, the industry is fighting this battle with consumer in the front. As always, the Indian consumer remains faceless and, unrepresented in this debate.

India’s telecom sector has been riddled with allegations of secret deals and compromises. Whether it was the delay in ushering in a migration package in 1999 till certain companies were nearly bankrupt and sold in a garage sale or when some of the most powerful Indian businesses invented the concept of limited mobility just to gain entry into the mobile telephony business without wanting to compete in a bidding opportunity and avoid paying the entry fee. Later, when, in the name of migration of existing limited mobility operators, 51 new licenses were granted to companies without any public announcement that first come, first served (FCFS) would be used as a process for granting licenses {UASL guidelines of 11thNovember 2003 (NDA) as well as 14th December 2005 (UPA-I) do not make any mention of FCFS}. Of course, the alleged criminal conspiracy between private operators and a former Telecom Minister is now well known, and the less said about that the better.

Each one of these has a single factor in common. Some company commercially benefitted, either through a delay or the invention of a concept or an opaque process of granting licenses – all of which were to exploit the arbitrage that was offered as a part of the deal. What stood out in each was the “behind-the-scenes” negotiation.

This time around, that strategy has less chance of succeeding. The TRAI has clearly stated with evidence and economics that the tariffs will not go up more than 1.5 paise to 3 paise per minute during the entire duration of the license. This economic evidence presented by the TRAI is important because it must become the basis of the discussion from hereon.

The telecom companies obviously have an significant agenda in keeping spectrum costs low. It improves their returns and reduces their investments. So a bland assertion by them about the TRAI’s recommendation being wrong, cannot be accepted at all. The industry has given three different figures: first they said a 20% hike; within a week, a 100% hike; and now, more recently, a 30 paise hike in some circles. There is also a claim that equipment worth lakhs of crores will be dumped based on the recommendations – a cost that will need to be passed on to the consumer. Unfortunately none of these claims have been backed with any strong economic evidence.

So here is the way we should approach this.

As far as the TRAI recommendations are concerned, the government must invite private operators, the TRAI, and officials of the government such as J.S. Deepak, who have criticized the TRAI on multiple accounts, to make their presentations publicly even if it takes two days back-to-back to resolve the issues. All assumptions, numbers, and traffic data should be publicly displayed for analysts, media and the legal community to watch. Stakeholders should remain committed to this process of transparent public dialogue till a common ground can be reached. The gap is so wide that both the TRAI and the operators cannot be both correct. The decision cannot be a compromise, but one that represents the accurate figures, even if based on some sane assumptions.

The only way to bring back credibility for the telecom sector in the short term is to hold the 2G auctions scheduled in August on the basis of a completely transparent procedure, and decisions that are made after everyone has had a chance to attack others’ and defend their position for as long as it takes to come to a conclusion.

The most important ingredient which will help improve governance in the telecom sector is a transparent decision-making process. There is nothing wrong if the TRAI is proved wrong in some of its assumptions or calculations. This is a process that we as a nation must go through – of testing regulators and also getting stakeholders to understand a new, transparent way of engaging the Government on regulations and public policy. We must wean the industry and business from what they are used to – these closed door conversations in Government offices. This time, no discussions or deals should be behind closed doors.